A More Hawkish Statement from Norwegian Monetary Authorities

March 16, 2011

While leaving their key policy interest rate at 2.0% for a seventh straight meeting, officials at the Norges Bank released a statement that bumps the projected policy rate range for the coming three months to 1.75-2.75% from 1.50-2.00% predicted three months ago for the quarter that is ending shortly.  Firm Norwegian economic activity ahead and rising market interest rates are noted.  Norway’s manufacturing purchasing managers survey in March had a reading of 58.7, which was up from 55.8 in January and the best score since October 2007.  Low inflation has given officials the luxury until now to keep tightening paused.  Consumer prices in February rose 0.4% but were just 1.2% higher than a year earlier. 

The Norges Bank implemented an initial interest rate increase of 25 basis points in October 2009, making it the first European central bank to tighten.  Subsequent tightenings of 25 bps were instituted in December 2009 and May 2010, but’s that’s all that has been done thus far.  Although the projected interest rate range during the coming calendar quarter suggests a likely fourth rate advance to 2.25% during that period, today’s statement doesn’t rule out a longer pause: “In the event of a marked slowdown in world economic growth, heightened financial turbulence abroad or a further appreciation of the krone, the increase in the key policy rate could be deferred further ahead.”  The present 2.0% key rate remains 375 basis points below the pre-October 2008 peak. 

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.



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